ECB policy: Realty players see no near-term gain
The Hindu Business Line, July 2, 2009, Page 2
Viability of new SEZ projects under question due to export slowdown.
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Policy focus
The Government has allowed SEZ developers to avail themselves of ECBs for providing infrastructure facilities within the SEZ
This offers an additional avenue to get funding at a lower cost
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Our Bureau, New Delhi
Real estate players on Wednesday hailed the Government’s decision to open the external commercial borrowing (ECB) window for special economic zone (SEZ) developers, although some players felt that the move may not offer immediate gains given the global economic downturn.
Reacting to the latest changes in ECB policy, real estate major Unitech said that while the move was “positive”, it would not make a big difference in the short-term.
“There would be no immediate benefit due to the global financial market conditions. However, this offers an additional avenue for SEZ developers to get funding requirement at a lower cost”, a senior Unitech offical said. Currently, Unitech has five IT-SEZs in the country.
The Government on Tuesday modified its external commercial borrowing (ECB) policy to allow SEZ developers to avail ECBs for providing infrastructure facilities within the SEZ.
The SEZ developers can avail themselves of ECBs only under the approval route, according to a Finance Ministry release. However, ECBs will not be permissible for development of integrated township and commercial real estate within the Special Economic Zones (SEZs).
Meanwhile, the country’s largest real estate company, DLF’s Group Executive Director, Mr Rajiv Talwar, pointed out that while money was available overseas, the current viability of new SEZ projects was itself is under question due to the slowdown seen in exports. Currently, DLF has five SEZs that are fully operational while it had recently got Government approval for de-notification of five other SEZs..
Hitherto, ECB was not permissible for the development of the SEZs. Only the units in the SEZs were permitted to access ECBs and that too for their own requirements.
As part of the review of the ECB policy, the Finance Ministry has also decided to continue the existing policy of permitting development of integrated township as a permissible end use, under the approval route, until December 2009.
Under the existing ECB policy, utilisation of ECB proceeds for the real estate is not permitted. However, as a sector-specific measure, the use of ECB proceeds for the development of integrated township had been permitted in January 2009 and the policy was due for review in June 2009.
The Export Promotion Council for EOUs and SEZs (EPCES) Director General, Mr L.B. Singhal, termed the Centre’s move as a “good step forward”, pointing out that SEZ developers can now access ECB funding for infrastructure facilities in a SEZ.
“SEZs by nature are infrastructure projects. One of the stated objective of the SEZ Act is to create infrastructure. In the first place, the ECB window should not have been withdrawn for SEZs”, Mr Singhal told Business Line.
Mr Singhal also said that RBI, along with the guidelines on the latest ECB policy changes, should issue directions to the effect that the terms and conditions for lending by commercial banks to SEZs should be the same as those specified for infrastructure financing.
Thursday, July 2, 2009
ECB policy: Realty players see no near-term gain
Land acquisition, R&R Bills run into Mamata hurdle
Land acquisition, R&R Bills run into Mamata hurdle
Business Standard, July 2, 2009, Page 6
Saubhadro Chatterji / New Delhi
Both the Bills have been pending in Parliament for approval.
Railway Minister and leader of Trinamool Congress Mamata Banerjee may force the government to redraft the much-delayed Rehabilitation and Resettlement (R&R) Bill 2007 and the Land Acquisition (Amendment) Bill, which spell out the United Progressive Alliance (UPA) government’s policy on land acquisition.
Both the Bills have been pending in Parliament for approval and form the lynchpin for faster industrialisation. Several large industrial projects, such as integrated steel plants by ArcelorMittal and Tata Steel and an aluminium complex by Posco, have run into problems as a result of controversies over land acquisition.
Banerjee could not raise these objections during the tenure of the first UPA as her party was not a member of the government then. When the Trinamool Congress became a UPA ally in its second term — it is the second-largest ally with 19 seats — Prime Minister Manmohan Singh had asked Banerjee to set out her ‘opinion’ to both the issues.
The Trinamool Congress wants sweeping changes in the Bill. Not only does the party want “land banks” to be created by all state governments, it also wants farmers to have the legal right to get back their land if the proposed project is not set up on the acquired land.
“My leader will spell out the party’s stand to the prime minister on these issues. But as a political worker I feel farmers should have legal rights to get back their land if it is not used for the proposed project,” Adhikary told Business Standard.
The Land Acquisition (Amendment) Bill, 2007 seeks to amend the original 1894 Act for the acquisition of land for public purposes and for companies undertaking projects.
The pending amendment to the Land Acquisition Act allows the government to acquire a residual 30 per cent of the land required for an industrial project for reasons of contiguity provided the private party buys 70 per cent of the land first.
Adhikary bluntly rules out this formula and insists there should be a provision to ensure that the purchase of land by the private players is done in a “transparent manner”.
“There are several instances where the private parties have bought land by intimidating or pressuring people. This can’t be allowed,” he said.
Banerjee has reaped big political dividends from anti-land acquisitions agitations for industrial projects. The first of these was in Nandigram, a three-hour drive from Kolkata, where her party’s fierce opposition to land acquisition for a chemical hub forced the Left Front government to relocate the plant. Last year, her party led a protest in Singur, an hour’s drive from Kolkata, where Tata Motors was to set up its Nano small car project. Trinamool’s central demand was that land acquired from unwilling farmers be returned to them. That campaign not only forced Ratan Tata to relocate the project to Gujarat, but her party won 19 seats out of 42 in West Bengal in the 2009 Lok Sabha elections, inflicting the left Front’s worst election record since it came to power.
Adhikary said the Trinamool Congress will also vehemently oppose “any industry on multi-crop land”. “We can’t allow industrialization of multi-crop land. It involves India’s food security and also the agriculture sector needs to be strengthened,” he said.
On the issue of “land banks” by state governments, the Trinamool Congress will cite the examples of Gujarat and Maharashtra and say that states need to identify the land for industry first before setting up new industry.
“After making a land map, the local people should be consulted and only if there is a consensus should the government go ahead and acquire the land,” Adhikary said.
Better safe than sorry
Better safe than sorry
The Economic Times, July 2, 2009, Page 12
Beware Of Teaser Loans
IS THE State Bank of India (SBI) out to displace Citi or ICICI Bank in aggressive banking? Its latest offer of home loans at a fixed rate of interest for the first three years, after which customers can choose between a floating and fixed rate, follows on the heels of similar teaser loan offers earlier. Given that teaser loans (adjustable-rate loans in which borrowers pay a relatively low interest rate initially, after which the rate is re-set) have been hugely discredited in the subprime crisis, SBI’s new-found fascination with such loans is hard to comprehend. As is the RBI’s silence on the issue. Teaser loans are meant to entice borrowers into taking loans because they look like a dream; never mind they might turn into a nightmare some years hence. In the instant case, the interest rate is fixed low up-front only for the first three years. From the fourth year onwards, the rate depends on SBI’s advance rate; borrowers opting for a floating rate paying 2% more and those opting for a fixed rate paying 1% less. There is also a five-year re-set clause which means every five years rates could change. Since housing loans, typically, have long maturities there is a high probability that the interest rate at the fag end of the loan period could be very different from that at the beginning. EMIs (equated monthly instalments) could be higher or lower depending on how the interest rate moves; higher EMIs could result in repayment problems. SBI, on its part, will have to be very careful in selecting home-loan borrowers if it is not to end up with a bad housing loan book. In a country where retail borrowers are yet to fully comprehend the implications of floating rates of interest, teaser loans could be dicey.
Public sector banks (PSBs), it is true, have often chafed at being compared unfavourably with their nimbler private sector counterparts. And yes, there is much they can learn from the latter, especially when it comes to customer-service. But today if PSBs are sitting pretty vis-a-vis their private sector rivals, it is because they remained firmly grounded and, by and large, did not get carried away by ‘irrational exuberance’ and risky products. SBI would do well to remember that.
Sobha raises Rs 526 cr thru QIP
Sobha raises Rs 526 cr thru QIP
The Hindu Business Line, July 2, 2009, Page 3
Our Bureau, Bangalore
Sobha Developers has successfully closed the bidding for qualified institutional placement (QIP) raising about Rs 526 crore.
The company, in its filing on the Bombay Stock Exchange, said that the board of directors had approved the issuance of 25,162,135 equity shares of face value of Rs 10 each at a price of Rs 209.4 per share.
With this QIP, the promoters’ stake in the company will come down by about 23 per cent from the current 87 per cent.
It is learnt that the funds would be utilised for working capital requirements and also part payment of the company’s debts. According to sources, buyers include domestic and foreign investors. Enam and Morgan Stanley managed the issue for Sobha Developers.
This is part of the company’s efforts to restructure its Rs 1,900-crore debt, and its current leverage is 1.65 times. The company is also looking at raising funds through sale of a part of their 3,000-acre land-bank, and is in talks with potential buyers for prime land parcels in Bangalore. In an interview to Business Line earlier, company officials had said that they hoped to raise about Rs 900 crore through preferential allotment, SPV-level funding, and sale of land.
Unitech to raise Rs 2,789 cr
The Financial Express – Corporates & Markets, July 2, 2009, Page I
Real estate firm Unitech on Wednesday said it will raise over Rs 2,789 crore through private placement of shares to institutional investors at Rs 81 a piece. The board has approved the issuance of over 34.43 crore shares to qualified institutional buyers (QIB) at a price of Rs 81 a piece, aggregating to Rs 2,789.32 crore, Unitech said The company, which had raised Rs 1,621 crore in the second half of April at Rs 38.50 per share through the qualified institutional placement (QIP) route, launched the second round on Friday at Rs 81 per share. Following the first round of QIP, promoter's stake had come down to 51 per cent from about 64 per cent.
Wednesday, July 1, 2009
Realty, metal drag down Sensex 291 pts
Realty, metal drag down Sensex 291 pts
The Economic Times, July 1, 2009, Page 10
MUMBAI: Realty and metal shares led the slide in equity benchmarks on Tuesday, as traders pared their long positions in the run-up to the Union Budget on July 6. Institutional investors, too, chose to play safe, as the general perception is that shares are fairly valued at current levels, and offer limited upsides even if the Budget meets market expectations. The Sensex fell 291.90 points, or nearly 2%, to close at 14493.84. The Nifty fell 89.85 points, or 2.3%, to close at 4291.10. News from the global economy was mixed. According to the Chicago purchasers’ index, US business activity contracted less than expected in June, raising hopes that the economy could improve in the second half of the year. On the other hand, the UK economy shrank a higher than estimated 2.4% in the first quarter of 2009, also the biggest contraction since 1958. Back home, realty shares were the worst hit, as it becomes increasingly clear that only a select few will be able to raise capital, and that too at valuations dictated by buyers. DLF, HDIL and Indiabulls Real Estate were among prominent losers, falling in the 8-12% range. “Our approximate calculations show that $15-20 billion worth of equity issuances at current multiples would raise the book value and 2010 EPS by 4-5% if profitability ratios are maintained on the newly-raised capital too,” said a Credit Suisse note to clients. “Earnings enhancement is less likely for the ongoing year. Forward EPS momentum, rather than valuation expansion, will be the primary positive driver of the market in the quarters to come,” the note added.—Our Bureau
GOVT MAY STICK TO 7% GDP GROWTH
The Economic Times, July 1, 2009, Page 1
Expecting a sharp rally in the second half of FY10, the Centre is likely to retain the GDP growth forecast at 7%, reports Deepshikha Sikarwar from New Delhi.
Centre to still see GDP in 7th heaven
Centre to still see GDP in 7th heaven
The Economic Times, July 1, 2009, Page 11
Deepshikha Sikarwar NEW DELHI
THE central government is likely to retain its GDP growth projection of 7% for 2009-10 as it expects a sharp recovery in the second half of the financial year.
The figure, forecast in the interim budget presented on February 16, is much higher than the World Bank forecast of 5.1%. Indeed, the economy had grown 6.7% in the previous fiscal compared to the World Bank’s estimate of 6.1%.
Though the prospect of poor rains has dampened the cautious enthusiasm, there is hope that recovery would be sharper in the second half, reflecting the growth across the world and making up for the lost steam in the first half, a government official told ET.
The stimulus packages unveiled by governments around the world are beginning to deliver and once demand revives in the developed world, which is seen post-September, the recovery would be faster, the official added. India too is running a fiscal expansionary policy. The interim budget pegged fiscal deficit at 5.5% of GDP in 2009-10. All these factors, together with the increased optimism, are the reason the government is retaining the 7% growth estimate in the economic survey and Budget.
Economic growth could be much higher in the next fiscal year at 8-8.5%, the official said. This is in line with the World Bank forecast that the economy will expand by 8% in 2010, faster than China’s projected growth at 7%. Ratings agency Fitch on Tuesday raised growth projection for India in 2009 to 6%. The government’s optimism is also based on the recovery shown by consumer goods, fastmoving consumer goods and cement. In April, industrial growth, as measured by the index of industrial production, turned positive at 1.4%, after remaining negative for the previous two months, with as many as 11 of the 17 industry groups showing a positive growth.
Up 2.8%,core firmly on recovery path
Up 2.8%,core firmly on recovery path
The Economic Times, July 1, 2009, Page 11
May Trend Portends Renewed Vigour In Industrial Growth, Say Economists
Our Bureau NEW DELHI
THE output in the six infrastructure industries grew 2.8% in May, pointing to a recovery in economic activity. While there is high divergence in the core sector data, the underlying trend is one of renewal in industrial growth, say economists.
“There is too much noise in the system and, hence, we cannot say whether this is a sustained recovery. But the underlying trend that is emerging from the data suggests recovery,” said DK Joshi of Crisil. The industries — oil, petroleum refinery products, coal, electricity, cement and finished steel — grew 3.1% in May 2008.
Cement output, which is an indicator of the construction activity in the country, clocked its second-highest growth in 12 months at 11.6%. “The growth in cement is encouraging; it has a multiplier effect and is a driver of growth,” said Ajay Shankar, secretary in the department of industrial policy and promotion (Dipp).
The core industries have a weight of around 27% in the index of industrial production, which is expected to show a high growth. “Industrial output for May is expected to be better… robust performance by domestic demand-driven industries will reflect in industrial output,” added Mr Shankar.
Oil and petroleum refinery products are the two sectors that have showed a drop in growth last month at –4.3% each.
“While the stimulus packages seem to have come in full effect as is seen through a robust growth in raw materials like cement and steel, revival in oil and petroleum holds the key,” said Soumendra K Dash, chief economist of CARE.
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